Greetings. Welcome to the AerSale Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Kristen Gallagher. Thank you. You may begin.

Good morning. I’d like to welcome everyone to AerSale’s second quarter 2021 earnings call. Conducting the call today are: Nick Finazzo, Chief Executive Officer; and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter’s results, we want to remind you that all statements made on this call that do not relate to matters of historical facts, should be considered forward-looking statements within the meaning of the Federal Securities Laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Important factors that can cause actual results to differ materially from forward-looking statements filed in the Risk Factors section of the company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 16, 2021, and its other filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements on this call. We’ll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metrics can be found in the earnings presentation materials made available on the Investors section of the AerSale website at IR.AerSale.com. With that, I’ll turn the call over to Nick Finazzo.

Thanks, Kristen. Good morning to everyone on the line and thank you for joining our call today. I'll begin with a brief overview of the quarter followed by operational updates and the progress we're making on our major strategic priorities. I'll then turn the call over to Martin for a closer look at the numbers. For those of you who are new to AerSale, we operate a purpose-built fully integrated, multi-dimensional adaptive business model serving the commercial aviation aftermarket. That includes part procurement, flight equipment sales and leasing, MRO, FAA certifications, and aircraft storage and decommissioning. This allows us to keep a close pulse on the market, identify attractive flight equipment purchases, and deliver a higher overall value to our customers as we touch nearly every aspect of the aircraft maintenance cycle. Before reviewing our results, I'd like to remind investors of a few important things to consider. First, we generally don't focus on quarterly year-over-year analysis to assess our financial performance, which you'll notice throughout our commentary. The rationale for this is simple: our asset management, acquisition, and flight equipment sale businesses are a cornerstone of our success and account for large transactions at irregular periods throughout the year. As we discuss our results, we'll make it a point to update our investors on these key transactions for both the current year and prior year periods. More importantly, we believe relevant indicators for our business performance are our asset acquisitions and activities, the outlook for flight equipment sales throughout the year, progress on engineered solutions, STC development and contracts, and the underlying performance of our MRO business. That being said, our performance in the second quarter of 2021 was strong, driven by improving commercial aerospace activity as airlines recommissioned parked aircraft, coupled with solid execution against our strategic Boeing 757 program. Our second quarter revenue was $91.9 million, which included $42.7 million of flight equipment sales mostly related to our 757 program. In the prior year, our revenue was $45.4 million with $3.1 million of flight equipment sales. Our overall business, excluding flight equipment sales, also grew at a robust 17% compared to the prior year, driven by the recommissioning of commercial aircraft as airline traffic begins to recover from the lows of the pandemic. Adjusted EBITDA in the second quarter of 2021 was $30.4 million or 33% of sales compared to $12.9 million or 28% of sales in the second quarter of 2020. Higher profit and margins were driven by higher volume, a favorable sales mix, and cost efficiency measures previously implemented. We also recognized $8.4 million in payroll support programs in the second quarter, compared to $6.3 million in the second quarter of 2020. As a reminder, these support programs incur offsetting costs related to program eligibility and we, therefore, do not adjust them out of our numbers. These results are modestly ahead of our expectations and position us well to deliver on the full-year guidance we have provided to all of our stakeholders. Turning to the specifics by segment and beginning with asset management. During the quarter, we sold $42.7 million of flight equipment consisting of three aircraft, one airframe, and two engines. In our USM business, both airframe and engine parts sales ran well ahead of prior year levels, as we were able to monetize strategic assets held as airlines recommissioned parked aircraft. Turning to leasing, and similar to last quarter, our leasing revenue was down compared to the prior year, as a result of three Boeing 747 passenger aircraft leases that expired at the end of 2020. With the conclusion of these leases, we evaluated the condition of the assets and inducted a portion of the engines into our lease pool, with the remaining assets scheduled to be parted out as USM to fully monetize the investment. This reduces our aircraft lease fleet to just four aircraft, two passenger and two freighters, all of which have been performing well. Regarding our TechOps business, total sales remain a highlight of our performance and continue to accelerate as the commercial recovery materializes. Demand for aircraft MRO is very strong, and we're running at full capacity relative to current workforce levels. To the extent we're able to attract and hire additional mechanics, we have the infrastructure to expand our throughput. However, hiring in these roles has been strained given system-wide demand. We expect our facilities to remain at our current labor capacity through the balance of the year and visible forecast period. Even as some aircraft have been recommissioned, requests for AerSale’s on-airport MRO services have far exceeded capacity throughout the pandemic. Turning to engineered solutions. During the quarter, we saw stronger interest in our AerSafe product as airlines learned they can utilize this solution to comply with both current and upcoming regulatory requirements. AerSale holds a supplemental type certificate or STC issued by the FAA and other foreign regulators for AerSafe. AerSafe was developed by our engineering team to initially address the fuel tank flammability reduction rule, abbreviated as FTFR. Our product serves as an FTFR alternative to the OEM nitrogen system installed in Boeing and Airbus aircraft. AerSafe incorporates a MIL-Spec reticulated polyurethane foam system designed to achieve the technical requirements of the FTFR. In addition to the FTFR mandate, an airworthiness directive has been issued for the Boeing 757 which requires separation of the fuel quantity indication system in the center fuel tank and has a mandatory compliance date of May 2022. We're working on adding the 757 to the list of aircraft already approved to install AerSafe, which includes Boeing 737 classics and NGs, 767, and 777, as well as the Airbus family of A318, 319, 320, and 321 aircraft. AerSafe is a cost-effective solution for this new regulatory requirement, enabling operators to avoid an expensive rewiring procedure that would otherwise involve substantial aircraft downtime. We expect this will result in a resurgence of demand for AerSafe that will peak in the coming quarters as we approach the May 2022 compliance deadline for the 757 and continue through 2026 as compliance will be required for other aircraft on which we hold AerSafe STCs. Next, I would like to discuss our strategic investments and priorities beginning with our engineered solutions product AerAware, an advanced technology enhanced vision system incorporating a military-style head wearable display, allowing pilots to see through the weather. We continue to work closely with our partners, potential customers, and the FAA to bring our AerAware product to market. We're scheduled to perform a second round of FAA flight testing next week and are making progress toward an STC award. As is commonly the case with FAA approved equipment, especially considering AerAware is the introduction of novel advanced technology to commercial aviation, final certification has been longer than expected. However, the feedback remains very positive from both the regulators and potential customers. Importantly for investors, while we have limited visibility on the timing of final FAA approval, the addressable market for this advanced technology represents the greatest opportunity for a single product in AerSale’s history. Ultimately, we believe enhanced vision technology will become ubiquitous on commercial aircraft, as it greatly improves safety and presents a very attractive return on investment for airlines by reducing scheduled delays due to weather and alleviating airport traffic congestion. Turning to the market outlook for strategic aircraft investments, conditions remain tight. Importantly, the limited availability of attractively priced flight equipment is driven by airlines working to bring back capacity online amid their own labor supply constraints. This is typical in a cycle as we see robust demand for MRO services, and operators await system stability before divesting of unneeded aircraft. Several factors keep us optimistic that there will be a strong buying opportunity as this process evolves. First, we note that aircraft storage facilities are still at near capacity levels and the number of out-of-service passenger aircraft remains high. Second, the recommissioning of Boeing 737 MAX aircraft has placed additional strain on the MRO supply chain, which will take time to ease. Once airlines have operating stability, we anticipate a surge of attractive asset packages to come on the market. We are supported by a healthy balance sheet, a strong cash position, and an undrawn $150 million revolver to make these investments at the appropriate time. In the interim, a strategic advantage for AerSale is that with our fully integrated multi-dimensional adaptive business model, we participate in virtually all aspects of the aircraft's service supply chain. This enables AerSale to be patient throughout the cycle, and organically grow the business built on the strength of our platform. In summary, AerSale is performing well and we're on pace to deliver on our full-year guidance. Currently, and through the balance of the year, our business is expected to be driven by robust TechOps demand in MRO, aircraft storage, and the sales of AerSafe. Our asset management business is on track driven by our 757 conversion program, and demand is robust for used serviceable material, although feedstock supply opportunities remain limited. As we look to the end of 2021 and into 2022, we're energized by the opportunities in front of us to deploy capital for asset acquisitions and to begin delivering our AerAware product. At this time, I'll hand it over to Martin for a look at the numbers before taking questions.

Thanks, Nick. I will start with an overview of our financial performance before ending with an update on our guidance. Our second quarter revenue was $91.9 million, which included $42.7 million of flight equipment sales, compared to $45.4 million in the second quarter of 2020, which had $3.1 million of flight equipment sales. As a reminder, our business may fluctuate from quarter-to-quarter and year-to-year based on flight equipment sales. And therefore, it is important to monitor our progress on asset purchases and sales over the long-term. Looking ahead to the rest of 2021, we continue to work with our customers to finalize the sale of the 24 Boeing 757s, whose purchase we announced in September of last year. During the quarter, we signed contracts for the sale of three aircraft and one airframe. And we have commitments for the sale of another 11 aircraft and one airframe. Second quarter revenue for asset management solutions or AMS increased to $60.3 million from $20.9 million in the second quarter of 2020. The increase was largely due to flight equipment sales of three aircraft, one airframe, and two engines sold during the quarter. These gains were partially offset by lower leasing volumes, resulting from three 747 passenger aircraft leases that expired as scheduled at the end of 2020. As stated, flight equipment sales AMS revenue was also higher as we've benefited from the pickup in consumption of used serviceable material (USM) parts for maintenance and overhaul activity due to air travel recovering and airlines bringing portions of their grounded fleet back online. We expect the consumption of USM parts to continue improving during the second half of the year. Second quarter revenue from TechOps was $31.6 million, up from $24.5 million in the second quarter of 2020. Our MRO facilities business benefited from the recommissioning of aircraft and robust storage, maintenance, and rehabilitation work. Looking forward, we remain confident that we will enjoy substantial revenues from reactivation work, heavy maintenance, and cargo conversion, and have a strategic advantage in identifying feedstock for our asset management solution segment as the recovery continues, given the large number of aircraft under our care on airport MRO facilities. Gross margin expanded to 33.4% from a negative 4.7% as a result of flight equipment sales and lower inventory impairments during the quarter. Selling general and administrative expenses were $8.6 million compared to $7.7 million. The increase in payroll and public company expenses offset the higher contribution from the payroll support program. The payroll support program contributed $8.4 million this quarter and $6.3 million in the second quarter of 2020. Income from operations was $22.2 million in the second quarter of 2021 compared to a loss from operations of $9.8 million in the second quarter of 2020. Net income was $16.5 million or 18% of sales, while net loss was $7.9 million in the second quarter of 2020. Second quarter adjusted EBITDA was $30.4 million or 33% of sales, up from adjusted EBITDA of $12.9 million or 28% of sales in the corresponding period in 2020. Adjusted EBITDA benefited from the CARES Act contribution of $8.4 million during the quarter. However, adjusted EBITDA would have been higher even after excluding the CARES Act benefit as a result of contributions from the high margin flight equipment sales, aircraft storage, and related maintenance activities, partially offset by lower leasing revenues. As we have mentioned previously, we do not adjust CARES Act proceeds out of our numbers as there are associated costs embedded in our results that are required to remain compliant with the provisions of the Act. Cash flow provided by operating activities was $8.6 million in the second quarter of 2021. This is compared to $38.3 million in the corresponding prior year period. The main driver of cash utilization during the quarter was higher inventory purchases primarily related to the 757 program, as well as higher accounts receivable balances due to increasing sales. At quarter end, AerSale had approximately $42 million of cash on its balance sheet and an undrawn revolver of $150 million. We believe this provides us with ample financial flexibility to fund our asset acquisition priorities in 2021 and beyond. Finally, our guidance update and summary: we expect revenue of $340 million to $360 million and adjusted EBITDA of $60 million to $70 million in 2021. This guidance is unchanged and reflects a stronger than expected first half, which we have offset as we risk-adjust our back half performance for the increase in uncertainty as the pacing of the pandemic recovery remains fluid given the spread of the COVID-19 Delta variant. Our outlook also reflects an improvement in activity in our asset management solution segment, continued strong demand for on-airport MRO services, accelerating demand and cargo and e-commerce markets, and increased requests for passenger to freighter conversions, and other TechOps products and services. Because of the robust demand for cargo conversion aircraft, we continue to project selling the majority of the available 757 aircraft in 2021 with the remainder in 2022. For TechOps, we continue to expect strong contributions from our storage, maintenance, and component MRO activities as well as increased sales of our AerSafe product. If all goes well, we may still commence sales of our AerAware products in Q4, but are very optimistic we will do so in the first half of 2022 at the latest. In summary, we believe that recent events have validated the strength of our unique multi-dimensional fully integrated business model. We have consistently adapted to a rapidly evolving backdrop and remain vigilant for opportunities. We will demonstrate our continued commitment to driving shareholder value as we capitalize on a wide range of organic opportunities, as well as the capital for additional acquisitions going forward.

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Gautam Khanna with Allen & Company. Please proceed with your question.

Yes, this is Dan filling in for Gautam. Good morning, and great quarter. Congratulations. I wanted to start by asking if you've noticed any changes in engine overhauls. Is there an increase in demand for those?

Not on the narrowbody side at this point. There continues to be strong demand on the widebody side, which is primarily supporting the freighter operators.

Okay, got it. What are you anticipating regarding the recovery in demand, particularly due to the changes in airlines' fleet composition? Is that the correct perspective on what will drive the aftermarket recovery? Are you including that in your outlook for 2021 or 2022?

It depends on whether we are discussing the narrowbody market or the widebody market, as they are completely different. The narrowbody market may be recovering in the U.S. currently, but it is facing constraints in Europe due to the spread of COVID. Europe hasn't achieved the expected level of flying this summer, and it’s unlikely to see that for the remainder of the season. In contrast, the U.S. has shown significant recovery over the summer. However, we are noticing declines in passenger bookings attributed to the Delta variant of the coronavirus, leading us to believe that more aircraft may go into storage for maintenance and decommissioning until the pandemic resolves. Our estimate is that this situation may not improve for at least six months. Furthermore, we think that international traffic, particularly for passengers, will remain low, affecting the demand for widebody engines in that sector. Conversely, we expect strong ongoing demand for widebody engines supporting international freight operations. On the narrowbody engine side, we do not anticipate recovery for a considerable period, and we believe that it will not occur until early 2023 or late 2024, which we have included in our projections.

Could you provide an update on the AerAware certification efforts? I know you briefly mentioned it in the prepared remarks. Are you expecting it to be certified in Q4? Also, how are these sales reflected in your current guidance?

I'll address the technical aspects of the certification, and I'm going to let Martin talk about what we have in the numbers. On the technical side, we did our first round of flying with the FAA, and the aircraft performed well and did what we expected it to do. The FAA identified a number of symbology issues that they wanted to see changed. We've focused on making those changes. They are all made now; those are primarily software issues that our partner, Universal Avionics Elbit have resolved. Our airplane is scheduled to fly again with the FAA next week to demonstrate to them that all the symbology issues that were previously identified have been corrected. Once that happens, our expectation is that we will then be able to technically freeze the software, so we can do our final study on that to confirm it complies with all requirements, and simultaneously have the FAA then allow us to do our final flight testing to demonstrate that the system does everything that's required. We expect there will be a third round of flight testing, which will be done after the software is validated. That's why we believe at this point, we'll be into the late third quarter potentially early fourth quarter to be able to finish our final flight testing, possibly at the end of the third quarter. The hope is that we will then get FAA certification and start delivering kits to customers that have asked and are waiting. We don't have an identified committed customer yet, and we haven't identified a customer; we don't have a commitment yet. What we need to do is we need to get closer to final certification to get an order.

As far as the forecast, our internal forecasts do not include any AerAware sales in the fourth quarter. Even without those sales, we are still confident that we will meet the range that we have previously provided. However, we do have those sales commencing in the second half of next year, contributing to the bottom line.

Okay, so your outlook doesn't include AerAware until H2 of next year. Got it? And so last question: I think, how are you doing on the labor side? Are you facing any constraints or any requirements to increase hiring? And related to that, is the payroll support program finished? There's no more inflows from that, I guess?

The payroll support program is finished. We don't expect to receive any benefit from that in the second half of this year or going forward unless something changes. With respect to personnel supply issues, clearly, the industry is facing stress when it comes to labor supply. Fortunately, we have enough labor to do all the work that we have planned for the balance of this year's forecast in the foreseeable future. However, we are struggling to gain additional labor to be able to grow the business at this point. We're working on initiatives we have previously done to help attract additional labor to our business and we're going to implement those in earnest to gain additional labor so we can continue to grow our MRO business. There's no hiding from the fact that labor is an issue across the industry.

Got it. Thanks, guys. I appreciate it. Answered all my questions.

Okay, you're welcome.

Thank you. Our next question comes from an analyst at Point Capital Management. Please proceed with your question.

Thank you. Hi, guys. So I think that you just said that you don't expect to get a final order for AerAware until you're closer to final certification. But I guess implied in that is that you do expect an order from your potential launch customer to come before the approval, correct?

Not 100% certainty, but indications are close. We believe we can get an order because the airline wants the system as fast as we can produce it.

Got it. And are you seeing interest for AerAware from other airlines besides this one launch customer?

Yes, they are careful potential launch customers and the answer is yes. All right, again, ladies and gentlemen, thank you for your interest in AerSale and for listening to our call today. We look forward to speaking with you again as we give our third quarter financial results. Thanks again. Goodbye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.